Exam 7: Applications of Simple Interest

A contract requires payments of $2,000 and $3,000, 90 days and 120 days, respectively, from today. What is the value of the contract today if the payments are discounted to yield a rate of return of 12% simple interest?

A contract requires payments of $1,700 in 50 and 100 days with interest at 6%. What is the value of the contract today if the payments are discounted to yield 7.5% simple interest?

The current rates on 90- and 180-day GICs are 5.5% and 6% simple interest, respectively. An investor is trying to decide whether to purchase a 90-day GIC and then reinvest its maturity value in a second 90-day GIC. What would the interest rate on 90-day GICs have to be 90 days from now for the investor to end up in the same financial position with either alternative?

Sam has a $10,000 personal line of credit. The interest rate is prime + 2%. On the last day of each month, a payment equal to the greater of $200 or 4% of the current balance (including the current month's accrued interest) is deducted from his chequing account. On July 2, he withdrew $4,000 and another $3,000 on July 15. The prime rate during July was 3%. Prepare a loan repayment schedule for the month of July.

For amounts between $10,000 and $24,999, a credit union pays a rate of 1.25% simple interest on term deposits with maturities in the 91 to 120-day range. However, early redemption will result in a rate of 0.55% being applied. How much more interest will a 91-day $20,000 term deposit earn if it is held until maturity than if it is redeemed after 80 days?

Monica finished her program at New Brunswick Community College on June 3 with Canada Student Loans totalling $6,800. She decided to capitalize the interest that accrued (at prime plus 2.5%) during the grace period. In addition to regular end-of-month payments of $200, she made an extra $500 lump payment on March 25 that was applied entirely to principal. The prime rate dropped from 5% to 4.75% effective September 22, and declined another 0.5% effective March 2. Calculate the balance owed on the floating rate option after the regular March 31 payment. The relevant February had 28 days.

An Investment Savings account offered by a trust company pays a rate of 0.25% on the first $1,000 of daily closing balance, 0.5% on the portion of the balance between $1,000 and $3,000, and 0.75% on any balance in excess of $3,000. What simple interest will be paid for the month of April if the opening balance was $2,439, $950 was deposited on April 10, and $500 was withdrawn on April 23?

On January 15, Mario signed a contract to pay Stephan $12,000 plus 9% simple interest on May 15 and $18,000 plus 10% interest on September 12. On August 15, Stephan then sold the first contract to Sally at a rate of 11% and the other contract to Anna for 12%. Determine the amount Stephan received on August 15.

A $100,000, 90-day commercial paper certificate issued by Bell Canada Enterprises was sold on its issue date for $98,950. What annual simple interest rate of return (to the nearest 0.001%) will it yield to the buyer?

For investments of $5,000 to $24,999, a bank quotes interest rates of 2.65% on 90-day GICs and 2.85% on 180-day GICs. How much more simple interest will an investor earn by placing $15,000 in a 180-day GIC than by purchasing two consecutive 90-day GICs? (Assume that interest rates do not change over the next 90 days. Remember that interest earned from the first 90-day GIC can be invested in the second 90-day GIC.)

Calculate missing value for the promissory note:

A 6-month non-interest-bearing promissory note issued on September 30, 2015 for $3,300 was discounted at 5.25% on December 1. What were the proceeds of the note?

Calculate missing value for the promissory note:

An investor purchased a 91-day, $100,000 T-bill on its date of issue for $97,500, and sold it 40 days later for $98,475. What simple interest rate of return did the original investor actually realize during the 40-day holding period?

Calculate missing value for the promissory note:

Calculate the maturity value of a 120-day, $1,000 face value promissory note dated November 30, 2015, and earning interest at 4.75% simple interest.

For 90- to 365-day GICs, TD Canada Trust offered a rate of 3.00% simple interest on investments of $25,000 to $59,999 and a rate of 3.20% on investments of $60,000 to $99,999. How much more will an investor earn from a single $60,000, 270-day GIC than from two $30,000, 270-day GICs?

Calculate missing value for the promissory note:

An agreement stipulates payments of $4,000, $2,500, and $5,000 in 3, 6, and 9 months, respectively, from today. What is the highest price an investor will offer today to purchase the agreement if he requires a minimum simple interest rate of return of 6.25%?

An agreement stipulates payments of $4,500, $3,000, and $5,500 in 4, 8, and 12 months, respectively, from today. What is the highest price an investor will offer today to purchase the agreement if he requires a minimum simple interest rate of return of 5.5%?